RSMR Portfolio Services Limited RSMR-PS Pillar 3 Disclosure

Transcription

1 RSMR Portfolio Services Limited RSMR-PS Pillar 3 Disclosure 1 Introduction Firms are required under the Senior Management Arrangements, Systems and Controls (SYSC) manual of the Financial Conduct Authority Handbook to have in place robust governance arrangements and effective procedures which allow it to identify, manage, monitor and report the risks it is or might be exposed to. RSMR-PS is authorised and regulated by the Financial Conduct Authority and this document sets out how the Firm complies with its obligations to identify, manage and mitigate risks. 2 Overview The Capital Requirements Directive ( CRD ) of the European Union created a regulatory capital framework across Europe governing how much capital financial services firms must retain. The rules are set out in the CRD under three pillars: Pillar 1 sets out the minimum capital resource requirement firms are required to maintain to meet credit, market and operational risks Pillar 2 requires firms to assess firm-specific risks not covered by Pillar 1 and, where necessary, maintain additional capital Pillar 3 requires firms to disclose information regarding their risk assessment process and capital resources with the aim to encourage market discipline by allowing market participants to assess key information on risk exposure and the risk assessment process. The rules in the FCA Prudential Sourcebook for BIPRU sets out the requirements for a Pillar 3 disclosure. The document is designed to meet RSMR-PS s Pillar 3 Disclosure obligations. 2.1 Frequency and location of disclosure Future disclosures will be issued on an annual basis once they have been reviewed and approved by the Board. The disclosures are not subject to audit except where they are equivalent to those prepared under accounting requirements for inclusion in the financial statements. The report and all future ones will be published on our Firm s website. 2.2 Scope of disclosure RSMR-PS provides discretionary investment management services only to customers categorised as Professional Clients. The Firm is classified as a BIPRU Firm as it carries out the activity of portfolio management but does not provide safekeeping and administration of financial instruments or hold client money. 3 Governance Arrangements 3.1 The Management Body The Board are responsible for the Firm s risk management governance structure and how the Firm s risk exposure must be managed in line with the Firm s overall business objectives and within its stated risk

2 appetite. This includes the governance of the process for identifying, evaluating, managing and reporting the significant risks faced by the Firm. The Board are ultimately responsible for ensuring that the Firm maintains sufficient capital and liquidity resources to meet its regulatory capital and liquidity requirements and to support its growth and strategic objectives. Risk management is embedded throughout the business, with the overall risk appetite and risk management strategy approved by the Board communicated down throughout the business as appropriate. The non-executive director has extensive relevant business and commercial experience with independent and objective judgement and can provide independent challenge to the Board and senior management. He is able to allocate sufficient time to meet the expectations of his role with the Firm. The Governance Arrangements of the management body of RSMR-PS is illustrated below: The Firm has reviewed the number of directorships held by members of the Board and are satisfied that the arrangements are such that the management body is able to commit sufficient time and resources to perform their obligations in the Firm. The number of directorships held is monitored on an ongoing basis. 4 Capital Adequacy and ICAAP The Firm s overall approach to assessing the adequacy of its internal capital is documented in the Internal Capital Adequacy Assessment Process ( ICAAP ). The ICAAP process includes an assessment of all material risks faced by the Firm and the controls in place to identify, manage and mitigate these risks. The risks identified are stress-tested against various scenarios to determine the level of capital that needs to be held. Where risks can be mitigated by capital, the Firm has adopted the CRD requirements for Pillar 1. Where the Board considers that the Pillar 1 calculations do not adequately reflect the risk, additional capital is added on in Pillar 2. Whilst the ICAAP is formally reviewed by the Board once a year, Senior Management review risks and the required capital more frequently and will particularly do so when there is a planned change impacting risks and capital or when changes are expected in the business environment potentially impacting the ability to generate income.

3 4.1 Own Funds The Firm is a BIPRU firm because it manages individual portfolios and does not provide safekeeping and administration of financial instruments, hold client money or deal in any instruments on its own account. A BIPRU firm must maintain at all times capital resources equal to or in excess of the base requirement ( 50,000). The Pillar 1 capital requirement for a BIPRU firm is the higher of: 1. Base Capital Requirement OR 2. Credit Risk plus Market Risk plus Counterparty Risk Capital Requirements OR 3. Fixed Overhead Requirement The Firm must maintain at all times capital resources equal to or in excess of the Pillar 1 requirement. Since authorisation in January 2018, the Company has complied fully with all capital requirements and operated well within regulatory requirements. At the point of authorisation, the Firm held the following capital position: Description Amount Ordinary share capital 68,000 Share Premium Other Reserves Retained Earnings Regulatory Adjustments Core Tier 1 Capital 68,000 Tier 2 Capital Surplus capital over minimum requirement 22,415 The Board are therefore comfortable that the Firm is, and has been throughout the financial year, adequately capitalised for Pillar 1 purposes. The Firm held approximately 68,000 in share capital at authorisation. The Board are comfortable that this will ensure prudent capitalisation and cover for market downturns and other risks that may materialise in the short to medium term. The Board constantly monitors the performance of the Firm and capital adequacy is regularly assessed by them. The Firm will also monitor risks throughout the year and decide if additional capital should be held against them. Additional risks that supplement the Pillar 1 requirements are detailed below and, where necessary, additional capital will be provided. 5 Management of Risk Framework 5.1 Risk Profile RSMR-PS has identified the following core risk categories: strategic, counterparty credit, market, liquidity, operational, legal and key person.

4 RSMR-PS s profile of these risks is continually evolving and is generally driven by: Changes to the market in which we operate; RSMR-PS s strategies and business objectives and; RSMR-PS s business/operating model RSMR-PS will seek to generate positive returns through carefully considered risk taking and robust risk management. As such the effective management and control of both the upside of risk taking and its potential downside is a fundamental core competency of the Firm. 5.2 Risk Appetite The Board is responsible for setting the Firm s risk appetite, defining the type and level of risk that the Firm is willing to accept in pursuit of its business objectives. 5.3 Three Lines of Defence The Firm s governance structure is designed such that the business is the first line of defence, the compliance function is the second line of defence with the Board representing the third line of defence. Strategies and goals Firm Values Risk Appetites First line of Defence Business Identification, control and management of risks. Operating requirements: roles and responsibilities, supervision, procedures, systems and controls Identifying Risks Faced Identifying Risks Taken Control and Management of Risks Second line of Defence Compliance, Senior Management Team and independent oversight of business Third Line of Defence Board Risk Management Framework Policies and Procedures, Guidance and Training Monitoring Governance Full accountability for the management of risks 5.4 Risk Assessment Framework The Board is responsible for approving the Risk Assessment Framework, which is used to ensure that the Firm has a comprehensive understanding of its risk profile, including both existing and emerging risks facing the Firm, and to enable it to assess the adequacy of its risk management in the context of the Firm s risk appetite.

5 Principal Risks Appetite Key Drivers Mitigation Strategic Risk The risk that arises from decisions that fail to reflect the full business operating environment and the impact of failing to adequately identify changes to the business model. The Firm will remain competitive by identifying opportunities and assessing the risks, rewards and costs associated with them before proceeding Regulatory landscape impacting the business. Commercial/market conditions Internal business/operating model The Board accepts responsibility for the strategic direction of the business and maintains a watch on geo-political, economic and regulatory change. We have a 3-year rolling strategic plan and part of the review of this plan necessitates checks on the impact of any new regulatory rules and/or trends. Counterparty Credit Risk The risk of financial loss due to the failure of a customer to meet their obligations to settle outstanding amounts The Firm will only engage in activities where appropriate contractual relationships are in place Market conditions Counterparty credit worthiness All trades are executed by the chosen investment platform. Our fees are taken from the cash account maintained on the platform. Agreements are in place covering the terms between us and the platforms. Market Risk Risk of losses in on and off balance sheet positions arising from adverse movements in market prices The Firm does not engage in propriety trading and does not actively seek market exposure. Volume and complexity of trading Market movements Liquidity Dealing procedures are in place to generate a percentage holding trade instruction, to avoid the risk of dealing instruction errors. Liquidity Risk The risk that the Firm does not have sufficient liquid resources or is unable to deploy such resources to meet its actual or potential obligations in a timely manner as they fall due The Firm will have sufficient and accessible financial resources as to meet any financial obligations as they fall due Operational risk Credit risk events Internal business operating model We monitor our cash flow regularly and report to the Board in the monthly Finance pack.

6 Principal Risks Appetite Key Drivers Mitigation Operational Risk The risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events The Firm will actively identify and manage the risk of its people, processes or systems failing. Operational risk is inherent in any business however the Firm will take steps to prevent such risks from increasing operating costs Internal business operating model External threats Market conditions Employees provided training and guidance on their obligations Critical technology performance monitored Risk scenario contingency planning Timely escalation and mitigation of identified risks Legal The risk arising from defective transactions, failing to take appropriate measures to protect assets, changes in law and claims resulting in a liability or loss to the Firm. The Firm has external legal and compliance advisors and does not intend to have any appetite for legal breaches Regulatory regime Legislative framework Training is provided to all employees PII cover is maintained Regular monitoring of changes in law and the implications to the Firm Key Person Risk The risk that the Firm loses key personnel and suffers from resultant lack of expertise. The Firm seeks to encourage key staff to remain with the firm and seeks to protect itself from loss of key staff. Competitive environment Personal activities We have identified Key Persons in the business and Keyman insurance is in place and reviewed. 6 Remuneration Policy RSMR-PS s Remuneration Policy complies with the Remuneration Code in relation to its size, nature, scope and complexity of our activities. The Policy is aligned to the Firms business strategy, objectives, values and long-term interests in respect of performance and effective risk management in line with the Firm s risk appetite. A copy of the Firm s Remuneration Policy is available on request and sets out how the Firm complies with the Remuneration Code.